Economists and economics 2009

27 July 2012
Why are (almost all) economists unaware of Milton Friedman’s thermostat?
(Worthwhile Canadian initiative) I know I’m right in saying that Milton Friedman’s thermostat is an important idea that all economists ought to be aware of. And I’m pretty sure I’m right in asserting that almost all economists are unaware of this important idea. Am I wrong? Are you aware of this idea? Maybe under some other name??
Google seems to tell me I’m right. I’m the first link, which is really pathetic for such an important idea; the second is Friedman himself (pdf); and most of the rest on the first page are other bloggers, mostly Market Monetarists. But this idea has got nothing (in particular) to do with Monetarism. Compare that to what Google comes up with for another of Milton Friedman’s important ideas. Scholarly articles, and its own Wikipedia page.
And every few days I come across an economist saying something that he would not have said if he were aware of Milton Friedman’s thermostat. Today it was Casey Mulligan, but the class [of] “economists who seem to be unaware of Milton Friedman’s thermostat because they say something they would not say if they were aware of it” seems to me to cover lots of very different economists.
Milton Friedman’s thermostat has got nothing to do with Monetarism, or even macroeconomics. Or rather, Milton Friedman’s thermostat is an idea that has very broad application, and has nothing in particular to do with Monetarism or even macroeconomics. Or even economics.

2009

Secrets of the Economist’s Trade: First, Purchase a Piggy Bank
(WSJ) Academic economists gather in Atlanta this weekend for their annual meetings, always held the first weekend after New Year’s Day. That’s not only because it coincides with holidays at most universities. A post-holiday lull in business travel also puts hotel rates near the lowest point of the year.
Economists are often cheapskates
Economists, like physicists, have been searching for a theory of everything. If there were to be such an economic theory, there is really only one candidate, based on extreme rationality and market efficiency. Any other theory would have to account for the evolution of individual beliefs and the advance of human knowledge, and no one imagines that there could be a single theory of all human behaviour. Not quite no one: a few deranged practitioners of the project [that macroeconomics should have microeconomic foundations] believe that their theory really does account for all human behaviour, and that concepts such as goodness, beauty and truth are sloppy sociological constructs. But these people discredit themselves by opening their mouths. – John Kay
13 December
Paul A. Samuelson, Economist, Dies at 94
The first American Nobel laureate in economics and the foremost academic economist of the 20th century, Mr. Samuelson was credited with transforming his discipline from one that ruminates about economic issues to one that solves problems, answering questions about cause and effect with mathematical rigor and clarity.
26 November
Organic mechanics
(FT) What do you call a financier in search of the iron laws of human behaviour? Answer: someone with a bad case of “physics envy”.
At least since the 18th century, economists have been borrowing from physics, redeploying everything from thermodynamics and the “conservation of energy” principle to the understanding of macroeconomics and the generation of fancy derivatives. The global financial crisis has, however, seen financiers cast their scientific net further as they try to understand what went wrong and how to make the banking system more stable in future. As a result, they are developing “biology envy”.
Bankers and financial economists are working with mathematical biologists to learn lessons about resilience from natural ecosystems – from fisheries to forests – and from the spread of disease. The exercise is certainly of more than academic interest. Andrew Haldane, executive director for financial stability at the Bank of England, says the regulatory structure for banking may be shaped by studies now in progress that treat global finance as a “complex adaptive system” like a living ecosystem.
18 November
Daron Acemoglu: What Makes a Nation Rich?
Say you’re a world leader and you want your country’s economy to prosper. According to this Clark Medal winner from MIT, there’s a simple solution: start with free elections.
We are the rich, the haves, the developed. And most of the rest — in Africa, South Asia, and South America, the Somalias and Bolivias and Bangladeshes of the world — are the nots. It’s always been this way, a globe divided by wealth and poverty, health and sickness, food and famine, though the extent of inequality across nations today is unprecedented: The average citizen of the United States is ten times as prosperous as the average Guatemalan, more than twenty times as prosperous as the average North Korean, and more than forty times as prosperous as those living in Mali, Ethiopia, Congo, or Sierra Leone.
The question social scientists have unsuccessfully wrestled with for centuries is, Why? But the question they should have been asking is, How? Because inequality is not predetermined. Nations are not like children — they are not born rich or poor. Their governments make them that way.
At the microlevel, we can help foreign citizens by educating them and arming them with the modern tools of activism, most notably the Internet, and perhaps even encryption technology and cell-phone platforms that can evade firewalls and censorship put in place by repressive governments, such as those in China or Iran, that fear the power of information.
There’s no doubt that erasing global inequality, which has been with us for millennia and has expanded to unprecedented levels over the past century and a half, won’t be easy. But by accepting the role of failed governments and institutions in causing poverty, we have a fighting chance of reversing it.
12 October
The Nobel prize for economics: The bigger picture
This year’s Nobel prize has rewarded the use of economics to answer wider questions
NEITHER Oliver Williamson of the University of California at Berkeley nor Elinor Ostrom of Indiana University at Bloomington was widely tipped to win this year’s Nobel prize for economics. This may be because their work sits at the boundary of economics, law and political science, and tackles different questions to the ones that economists have traditionally studied. Ms Ostrom is also notable as the first woman to win the economics prize in its 40-year history.
Mr Williamson and Ms Ostrom work independently of each other but both have contributed plenty to economists’ understanding of which institutions—firms, markets, governments, or informal systems of social norms, for example—are best suited for conducting different types of economic transactions. Why, for example, do some transactions take place within firms, while others are carried out in competitive markets? Financial Times ; NYT ; Press Release ; profile of Elinor Ostrum in the Globe & Mail
8 October
The Nobel prize for economics may need its own bailout
(The Guardian) Facing a similar crisis of legitimacy, the prize needs to prove it is much more than an award for stock market speculators
The economics award is usually the last of the Nobel prizes to be announced. Correctly so, for it was also the last to be created – and strictly speaking is not even a real Nobel prize. The economics prize is not a prize of the Nobel Foundation; rather, it was created in 1968 by the Central Bank of Sweden as a “prize in economic sciences in memory of Alfred Nobel”.
There have been recurrent doubts about whether it conforms to the basic goals of the prizes as envisaged by the founder. Is economics a science, on the same lines as physics or chemistry? Does it unambiguously contribute to human wellbeing, like peace or literature? In any case, should economics be privileged over other branches of learning?
1 October
Greenspan and Strauss-Kahn clash on regulation
(FT) Alan Greenspan, former Federal Reserve chairman, continues to argue that even financial products that led to the economic crisis should not be banned, affirming his belief that markets should be the final arbiter over which tools work.
Mr Strauss-Kahn, at the same conference, disputed the notion that the market was a sufficient remedy and argued that better enforcement of regulations was necessary to prevent future crises, which in low income countries can be “a question of life or death”. Relying completely on the market, he said, came with a “huge human cost” in terms of lost economic output and unemployment.
6 September
Paul Krugman asks How Did Economists Get It So Wrong?
(NYT Magazine) This is a long Magazine piece, not a column, so in the interest of time, we quote only the concluding paragraphs – the careful readers and economists among us, will have to read the supporting arguments.
— So here’s what I think economists have to do. First, they have to face up to the inconvenient reality that financial markets fall far short of perfection, that they are subject to extraordinary delusions and the madness of crowds. Second, they have to admit — and this will be very hard for the people who giggled and whispered over Keynes — that Keynesian economics remains the best framework we have for making sense of recessions and depressions. Third, they’ll have to do their best to incorporate the realities of finance into macroeconomics.
— Many economists will find these changes deeply disturbing. It will be a long time, if ever, before the new, more realistic approaches to finance and macroeconomics offer the same kind of clarity, completeness and sheer beauty that characterizes the full neoclassical approach. To some economists that will be a reason to cling to neoclassicism, despite its utter failure to make sense of the greatest economic crisis in three generations. This seems, however, like a good time to recall the words of H. L. Mencken: “There is always an easy solution to every human problem — neat, plausible and wrong.”
–When it comes to the all-too-human problem of recessions and depressions, economists need to abandon the neat but wrong solution of assuming that everyone is rational and markets work perfectly. The vision that emerges as the profession rethinks its foundations may not be all that clear; it certainly won’t be neat; but we can hope that it will have the virtue of being at least partly right.
13 August
LAW OF EASY MONEY
A 300-year-old example of quantitative easing
… one lesson from Law’s sorry tale endures: attempts to maintain asset prices above their fundamental value are eventually doomed to failure.
(The Economist) [John] Law’s insight was that economic activity could be boosted by the use of paper money that was not backed by gold and silver. He was well ahead of his time.
Establishing confidence in a new monetary system was the trickiest part. Law had the benefit of working for an absolute monarchy which could decree that taxes should be paid in the form of notes issued by his new bank, Banque Générale. He also believed, having observed the success of the Dutch in exploiting the spice trade in the East Indies, that France could use paper money to develop its colonial possessions. Hence the Mississippi scheme, under which Law created the Compagnie d’Occident to exploit trade opportunities in what is now the United States. The money raised from these share issues was used to repay the government’s debts; on occasion, Law’s bank lent investors the money to buy shares. Turn this into modern economic jargon and Law could be described as creating a stimulus package for French economic activity. But rather than rescuing sunset industries such as carmaking, Law was an early venture capitalist, financing the dynamic potential of the Mississippi delta.
6 August
In defence of the dismal science – Robert Lucas, University of Chicago
THERE is widespread disappointment with economists now because we did not forecast or prevent the financial crisis of 2008. The Economist’s articles of July 18th [see WHAT WENT WRONG WITH ECONOMICS below] on the state of economics were an interesting attempt to take stock of two fields, macroeconomics and financial economics, but both pieces were dominated by the views of people who have seized on the crisis as an opportunity to restate criticisms they had voiced long before 2008. Macroeconomists in particular were caricatured as a lost generation educated in the use of valueless, even harmful, mathematical models, an education that made them incapable of conducting sensible economic policy. I think this caricature is nonsense and of no value in thinking about the larger questions: What can the public reasonably expect of specialists in these areas, and how well has it been served by them in the current crisis?
6 August

How to rebuild a shamed subject
By Robert Skidelsky
(Financial Times) It was to be expected that our present economic traumas would call into question the state of economics. “Why did no one see the crisis coming?”, Queen Elizabeth reportedly asked one practitioner. A seminar at the British Academy tried to answer and the FT has taken up the discussion.
The Queen’s question is understandable, given the subject’s claims on its own behalf. Ever since modern economics started in the 18th century it has presented itself as a predictive discipline, akin to a natural science. Since the future a year ago included the present slump, it is natural that the failure of the economics profession – with a few exceptions – to foresee the coming collapse should have discredited its scientific pretensions. Economics is revealed to have no more clothes than other social science. …  Nevertheless, the Queen’s question was wrong, because it accepted at face value the predictive claim of economics – a feature that has distinguished it from all other social sciences. Karl Popper produced a famous argument against the possibility of prediction in human affairs: one cannot anticipate a new invention because, if one could, one would already have invented it. However, this objection can be overcome if one assumes a stable and repetitive universe in which rational actors make efficient use of the information available to them. In this environment, uncertainty disappears to be replaced by calculable risk. Shocks and mistakes may occur but these will cancel each other out, so that, on average, people get what they expect.
30 July
DAVID BROOKS: Wise Muddling Through
The Federal Reserve is not the most democratic institution, but under Ben Bernanke, Henry Paulson, Tim Geithner and others it seems to have done a good enough job.
In theory, Ben Bernanke, Henry Paulson and Tim Geithner were as well prepared as anyone for this sort of event. Bernanke had spent his life studying the Great Depression; Paulson had led the world’s most prestigious investment bank; Geithner had been involved in financial rescues in Asia and beyond. Moreover, all of them were expecting some kind of crisis. They knew there had been a dangerous surge of debt. And yet as the panic unfolded in 2007 and 2008, they continually underestimated its scope and implications.
28 July
Like it or not, we’re all neo-liberals now
By David McDonald, professor of global development studies at Queen’s University.
Every dog has its day, and the same applies to economic theory. Today’s dog is neo-liberalism, a policy framework developed by economists Friedrich Hayek and Milton Friedman, which found political expression under Margaret Thatcher and Ronald Reagan in the 1980s.
27 July
Nouriel Roubini: The Joblessness Threat
(Turkish Weekly) Recent data suggest that job market conditions are not improving in the United States and other advanced economies.
… a policy dilemma: rising unemployment rates are forcing politicians in the US and other countries to consider additional fiscal stimulus programs to boost sagging demand and falling employment. But, despite persistent deflationary pressure through 2010, rising budget deficits, high financial-sector bailout costs, continued monetization of deficits, and eventually unsustainable levels of public debt will ultimately lead to higher expected inflation – and thus to higher interest rates, which would stifle the recovery of private demand.
18 July
WHAT WENT WRONG WITH ECONOMICS
And how the discipline should change to avoid the mistakes of the past
(The Economist) OF ALL the economic bubbles that have been pricked, few have burst more spectacularly than the reputation of economics itself. A few years ago, the dismal science was being acclaimed as a way of explaining ever more forms of human behaviour, from drug-dealing to sumo-wrestling. Wall Street ransacked the best universities for game theorists and options modellers. And on the public stage, economists were seen as far more trustworthy than politicians.
In the wake of the biggest economic calamity in 80 years that reputation has taken a beating. In the public mind an arrogant profession has been humbled. Though economists are still at the centre of the policy debate–think of Ben Bernanke or Larry Summers in America or Mervyn King in Britain–their pronouncements are viewed with more scepticism than before. The profession itself is suffering from guilt and rancour. In a recent lecture, Paul Krugman … argued that much of the past 30 years of macroeconomics was “spectacularly useless at best, and positively harmful at worst.” Barry Eichengreen, a prominent American economic historian, says the crisis has “cast into doubt much of what we thought we knew about economics.”
In its crudest form–the idea that economics as a whole is discredited–the current backlash has gone far too far. If ignorance allowed investors and politicians to exaggerate the virtues of economics, it now blinds them to its benefits. Economics is less a slavish creed than a prism through which to understand the world. It is a broad canon, stretching from theories to explain how prices are determined to how economies grow. Much of that body of knowledge has no link to the financial crisis and remains as useful as ever.
And if economics as a broad discipline deserves a robust defence, so does the free-market paradigm. Too many people, especially in Europe, equate mistakes made by economists with a failure of economic liberalism. Their logic seems to be that if economists got things wrong, then politicians will do better. That is a false–and dangerous–conclusion.
The other-worldly philosophers
(The Economist) Although the crisis has exposed bitter divisions among economists, it could still be good for economics. Our first article looks at the turmoil among macroeconomists. Our second (Efficiency and beyond) examines the foundations of financial economics.
7 July
J. Bradford DeLong: Sympathy for Greenspan
BERKELEY – In the circles in which I travel, there is near-universal consensus that America’s monetary authorities made three serious mistakes that contributed to and exacerbated the financial crisis. This consensus is almost always qualified by declarations that the United States has been well served by its Federal Reserve chairmen since at least Paul Volcker’s tenure, and that those of us who have not sat in that seat know that we would have made worse mistakes. Nevertheless, the consensus is that US policymakers erred when:
· the decision was made to eschew principles-based regulation and allow the shadow banking sector to grow with respect to its leverage and its compensation schemes, in the belief that the government’s guarantee of the commercial banking system was enough to keep us out of trouble;
· the Fed and the Treasury decided, once we were in trouble, to nationalize AIG and pay its bills rather than to support its counterparties, which allowed financiers to pretend that their strategies were fundamentally sound;
· the Fed and the Treasury decided to let Lehman Brothers go into uncontrolled bankruptcy in order to try to teach financiers that having an ill-capitalized counterparty was not without risk, and that people should not expect the government to come to their rescue automatically.
There is, however, a lively debate about whether there was a fourth big mistake: Alan Greenspan’s decision in 2001-2004 to push and keep nominal interest rates on US Treasury securities very low in order to try to keep the economy near full employment. In other words, should Greenspan have kept interest rates higher and triggered a recession in order to avert the growth of a housing bubble?
4 July
Robert J. Barro: Demand Side Voodoo Economics
(The Economists’ Voice) as explained by Tony Deutsch
Barro’s story is directed at the kind of Keynesian economics I was taught as a student: it was all the rage half-a-century ago. There was a multiplier to government expenditure in creating new income through a re-spending effect, plus the assumption that the government spending will not displace other expenditure.(This is where life becomes complicated.) If it does replace other expenditure, the multiplier = 0. Using statistical analysis, Barro shows that the US multiplier is pretty close to zero. The planners of the Obama team use 1.5 as their estimate, thus underestimate the probable effect of their stimulus package. Barro is no fool, fools do not become professors at Harvard too often. Where Barro is vulnerable, is his use of historical data to calculate his zero. (There is no other way to do this kind of calculation..) If the relevant circumstances have changed (parametric shifts in our jargon) , his conclusion might not hold. But where in Hades do Larry Summers & co get their 1.5?
25 June
Economic debate enlightening but inconclusive
One interesting phenomenon that has occurred since the start of the current recession is an increased debate about the government’s ability to influence the economy. The original theories proposed by Adam Smith held that governments did not have much power to directly guide markets and were only able to work through the standard mechanisms of trade and the “invisible hand” of market forces.
18 June
Thomas Homer-Dixon: The Newest Science
(Alternatives Journal) PHYSICS WAS THE master science of the 20th century. Ecology will be the master science of the 21st century.
What do I mean by master science? A master science is, in part, the dominant scientific discipline of a historical epoch. It is the prototypical science of the time – the discipline that people think of first when they consider science. It’s also likely to have produced the most spectacular discoveries and technologies. More importantly, a master science generates and orders the concepts through which society understands itself and its relation to its surroundings.
Times of crisis, however, create opportunities for new ideas to flourish. Just as the dominant mechanistic worldview is being discredited, an alternative perspective – complex adaptive systems (CAS) theory – is emerging. This theory tries to make sense of a messy world, especially those parts of it (immune systems, economies and the like) that have evolved the ability to adapt to rapid change. But CAS theory doesn’t neurotically eliminate all the mess with Newtonian-like laws or systems of equations. As befits a theory that has grown at the intersection of disciplines as diverse as mathematics, molecular biology and economic geography, CAS is messy itself – in fact, it’s not yet clear whether it truly qualifies as a “theory,” in a strictly scientific sense. … In a world of unknown unknowns, we can’t hope to precisely predict the behaviour of critical systems, and we shouldn’t presume that we can manage that behaviour with precision either. Ecology and CAS theory therefore put a premium on prudence in policy. They tell us that we shouldn’t be surprised by surprise and that systemic crisis and even systemic breakdown are inevitable features of evolving complex systems. But no one wants such breakdown to become catastrophic – as, unfortunately, could happen with the world’s current economic crisis. To avoid catastrophe, a complex-systems perspective suggests that we should build “resilience” into our critical technological, social and natural systems, so that they don’t fall apart when hit by significant shocks.
The Next Big Thing: Resilience
(Foreign Policy May/June 2009) With increasing fervor since the 1980s, sustainability has been the watchword of scientists, environmental activists, and indeed all those concerned about the complex, fragile systems on the sphere we inhabit. It has shaped debates about business, design, and our lifestyles. … Resilience … accepts that change is inevitable and in many cases out of our hands, focusing instead on the need to be able to withstand the unexpected. Greed, accident, or malice may have harmful results, but, barring something truly apocalyptic, a resilient system can absorb such results without its overall health being threatened. Like sustainability, resilience encompasses both strategy and design, guiding how choices are made and how systems are created. Stripped to its essence, it comes down to avoiding being trapped or trapping oneself on a losing path.
23 May
Prophet Motive Is Nouriel Roubini lucky or just good?
by Julia Ioffe
(The New Republic) Now that his early prophesies of a “bloodbath” have come to pass, Roubini’s star is at its apex, and everyone wants a little ray of its gloomy light. This includes his editors at Forbes, The Wall Street Journal, and a growing number of other publications; his students at NYU, where he is a popular tenured professor; and his consultancy’s swelling portfolio of clients–the World Bank, IMF, 50 central banks, and 30-odd finance ministries among them. He also appears on CNBC almost every day. He is a curious presence on the network–the antipode to its yawping, fratty ethos–and he is trotted out to play the foil, delivering bad news with a dark and steady gaze, punctuated by the occasional impish smile. It’s good for business, Roubini admits, but he makes no secret of his contempt for the network’s roster of “perma-bulls who declare that this is the dramatic and cathartic event that signals the bottom of the crisis, and recovery is three months ahead.”
By calling the recession, Roubini has traveled from the Jeremiah wilderness to become one of the world’s central economic authorities. So, does he have a unique ability to penetrate data, or was he simply a relentless pessimist the business cycle was eventually bound to vindicate? Is he our great economic seer, or did he just get lucky?
May 2009
The Quiet Coup
by Simon Johnson, professor at MIT’s Sloan School of Management; the chief economist at the IMF during 2007 and 2008
(The Atlantic) The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.
Becoming a Banana Republic
In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.
But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.
28 April
The great crash of the “Chicago school” of economics
(Salon.com) It’s been a bad year for the University of Chicago Economics Department. And I’m not just talking about Alan Greenspan’s remark to Congress that he “made a mistake” about the ability of markets to self-regulate themselves. I’m talking hard, cold, quantifiable facts: Neither the most recent Nobel prize for economics nor the John Bates Clark award given to the best economist under the age of forty went to a card-carrying member of the “Chicago School.”
22 April
John Kay: How economics lost sight of real world
(Financial Times) There is not, and never will be, an economic theory of everything. We should observe empirical regularities and we will often find pragmatic solutions that work even though our understanding of why they work is incomplete.
Since the 1970s economists have been engaged in a grand project. The project’s objective is that macroeconomics should have microeconomic foundations. In everyday language, that means that what we say about big policy issues – growth and inflation, boom and bust – should be grounded in the study of individual behaviour.
28 March 2009[Paul Krugman] Obama’s Nobel Headache
(Newsweek) Paul Krugman has emerged as Obama’s toughest liberal critic. He’s deeply skeptical of the bank bailout and pessimistic about the economy. Why the establishment worries he may be right.
You hope he’s wrong, and you sense he’s being a little harsh (especially about Geithner), but you have a creeping feeling that he knows something that others cannot, or will not, see. By definition, establishments believe in propping up the existing order. Members of the ruling class have a vested interest in keeping things pretty much the way they are. Safeguarding the status quo, protecting traditional institutions, can be healthy and useful, stabilizing and reassuring. But sometimes, beneath the pleasant murmur and tinkle of cocktails, the old guard cannot hear the sound of ice cracking. The in crowd of any age can be deceived by self-confidence, as Liaquat Ahamed has shown in “Lords of Finance,” his new book about the folly of central bankers before the Great Depression, and David Halberstam revealed in his Vietnam War classic, “The Best and the Brightest.” Krugman may be exaggerating the decay of the financial system or the devotion of Obama’s team to preserving it. But what if he’s right, or part right? What if President Obama is squandering his only chance to step in and nationalize—well, maybe not nationalize, that loaded word—but restructure the banks before they collapse altogether?
13 March
Dani Rodrik: Blame Economists, Not Economics
As the world economy tumbles off the edge of a precipice, critics of the economics profession are raising questions about its complicity in the current crisis. Rightly so: economists have plenty to answer for.
It was economists who legitimized and popularized the view that unfettered finance was a boon to society. They spoke with near unanimity when it came to the “dangers of government over-regulation.” Their technical expertise – or what seemed like it at the time –�gave them a privileged position as opinion makers, as well as access to the corridors of power. Very few among them (notable exceptions including Nouriel Roubini and Robert Shiller) raised alarm bells about the crisis to come. Perhaps worse still, the profession has failed to provide helpful guidance in steering the world economy out of its current mess. On Keynesian fiscal stimulus, economists’ views range from “absolutely essential” to “ineffective and harmful.”
12 March
Was Milton Friedman right about the euro?
(FP) Before the launch of the euro in 1999, Milton Friedman predicted that the Eurozone would not survive its first economic crisis.He noted that in a world of floating exchange rates, if one country faces a shock, it could simply respond by letting the exchange rate change. But with the arrival of the euro, that option is no longer available.
January 2009
Joseph Stiglitz: Capitalist Fools
(Vanity Fair) Behind the debate over remaking U.S. financial policy will be a debate over who’s to blame. It’s crucial to get the history right, writes a Nobel-laureate economist, identifying five key mistakes—under Reagan, Clinton, and Bush II—and one national delusion.

25 September 2006
Joseph Stiglitz: Good numbers gone bad; Why relying on GDP as a leading economic gauge can lead to poor decision-making.
(Fortune) In today’s business reality, where intangible assets have become increasingly important, cash flow can be a particularly bad indicator of a company’s value. A startup can have no cash flow and yet be creating a software program of immense value. A company with positive cash flow can be running itself into the ground as its capital depreciates. Economies are no different. That’s why economists looking for an alternative accounting framework to supplement the use of GDP are considering a new measure: green net national product. The “green” means that GDP must be reduced to take into account the depletion of natural resources and the degradation of the environment – just as a company must depreciate both its tangible and intangible assets. “Net” national product (NNP) means that there has to be an adjustment for the depreciation of the country’s physical assets.